Competition is a transformative force and is responsible for shaping everything from biology to the economy. Governments have set up institutional bodies to foster and encourage it.

Economically, the benefits are tangible and easy to measure. Competition lowers prices, drives efficiency and encourages innovation.

It works, in part, because if consumers are dissatisfied with a particular vendor, be in on the grounds of service, price or quality, they can simply find another provider that does meet their needs.

If competition is such a vaunted force, why shut it out of local government? As it stands, the local government funding system limits competition because it is reliant on property tax, or rates.

If a ratepayer is dissatisfied to the point of wanting to move, they can’t take their property with them. If they sell, the buyer picks up the rates bills.

That’s hardly an incentive for councils to operate efficiently and improve their service. Just ask the residents of Kaipara District, who face q 20 per cent rates increase every year for the foreseeable future because of a waste water project that was funded by illegally raised debt.

An attempt to boycott these increases was mounted by 1,600 households, but was quickly sapped due to the council’s ability to levy penalties and collect arrears through mortgage payments.

The moral hazard from the lack of incentive for councils to operate efficiently occurs throughout the country. Take Wellington, for example, where a furore recently arose over the $15,000 to remove a white ‘plus’ symbol from a logo.

This was signed off without the elected official responsible blinking an eye at the fact that the change represented over 60 per cent of the cost of the initial logo.

Competition is still possible in some regions, where residents live in one council district and work in another. If you were dissatisfied with Hutt City, you could move to Upper Hutt without too much disruption.

However, it appears not for much longer as pressure increases for local government mergers. Moves are afoot to amalgamate five East Coast councils into a single local government body. And in Wellington, city officials are pushing a merger with Porirua, Hutt City, Upper Hutt and Kapiti Coast into a super city in the Auckland mould.

Proponents of amalgamation will point to the synergies, economies of scale and cost savings offered. But these ignore the fact that the bigger the council, the less responsive it is to the needs of the margin as local bodies get subsumed into a larger bureaucracy.

Take Auckland, where the Unitary Plan has steered all major development to the CBD, which substantially benefits rich inner-city residents more than it does those who live in Manukau.

There is a solution to this: change the way local government is financed.

A change to a tax-per-head system, where the costs of the council are charged directly to each resident as opposed to exclusively property owners, would be an excellent mechanism for competition.

Such moves would immediately be labelled poll taxes, for that is what they are. But from a resident’s point of view, the tax would be neutral, because right now they are either paying it directly through rates, or indirectly through rents. A poll tax would replace the current system, not add to it.

A direct tax would give councils a huge incentive to work for people in the regions because, if they failed, their revenue base would soon migrate elsewhere. It would also likely foster more accountability because you could measure just how well a council was doing by a simple head count.

It would also give councils the ability to experiment, and this is at the heart of competition. Local government could try lure residents and businesses with tailored packages to see what worked for their region. Successful policy mixes could be copied from other regions, and nasty failures avoided.

Under this system, councils would almost certainly be more inclined to welcome development, such as new housing, because each new resident would represent a new revenue steam. That source of funding would only start to flow once people moved into a new house, thereby incentivising councils to speed up the approvals process, instead of wrapping everything in layer after layer of suffocating red tape.

If this sounds a bit utopian, it’s not. We know competition works practically at a local government level because we have seen it in action in Germany and Switzerland.

The alternative is to take a broken system and force every regional and district council to use it. In other words, to do exactly what we are doing now.

This has landed us with council debt levels that have more than quadrupled in the past 10 years. Bids to keep rates low have also seen crucial infrastructure investments and maintenance of these assets deferred for decades, such that councils will have to take out even more debt to complete the work they should have done.

So far central government involvement has been limited to legislation requiring more transparency and financial accountability. That is a good thing, but at this stage of the process, it is akin to rearranging deck chairs on the Titanic.

In short, we need major change to the structure of local government finance, the kind that opens it to competition.